The Australian Energy Regulator that says Victoria's power companies have overstated the cost of rolling out smart meters by $500 million.

In a draft decision, the regulator says CitiPower, Jemena, Powercor, SP AusNet and United Energy Distribution have not made a good enough case for charging $1.24 billion for the three-year roll out.

Andrew Reeves, the chairman of the electricity and gas regulator, says the cost increase is not justified."On their numbers put in front of us, charges would typically go up from currently about $100 a year to about $160 a year," he told ABC Local Radio.

"Under our proposal the charges would still increase, but would only increase by about an additional $20 a year."

The regulator says the cost of the rollout should be $760 million.

Energy Minister Michael O'Brien says the State Government was always concerned that costs were not properly scrutinised by the former Labor government."We'll be making our own submissions to the regulator before they make a final decision.